IDEAS home Printed from https://ideas.repec.org/a/eee/proeco/v202y2018icp32-44.html
   My bibliography  Save this article

Optimal (z, Z)-type contracts for vendor-managed inventory

Author

Listed:
  • Lee, Jun-Yeon
  • Cho, Richard K.

Abstract

We examine (z, Z)-type contracts for vendor-managed inventory (VMI) between a supplier and a retailer from the retailer's perspective. A (z, Z) VMI contract specifies minimum and maximum inventory levels and their corresponding under- and over-stocking penalties. The retailer chooses the contract parameter values and the supplier decides whether to accept the contract and, if accepts, manages the inventory at the retailer and makes replenishment decisions. The supplier accepts the contract if his cost under VMI is no larger than his reservation cost. We provide the optimal (z, Z) VMI contract for the retailer and the corresponding optimal replenishment decisions for the supplier and show that the optimal (z, Z) VMI contract can coordinate the supply chain under mild conditions. We also examine a VMI contract with stockout penalty and holding-cost sharing, which is a special type of (z, Z) contract, and find that it may perform well compared with the optimal (z, Z) VMI contract, although its performance may depend on several factors such as the supplier's reservation cost.

Suggested Citation

  • Lee, Jun-Yeon & Cho, Richard K., 2018. "Optimal (z, Z)-type contracts for vendor-managed inventory," International Journal of Production Economics, Elsevier, vol. 202(C), pages 32-44.
    • Handle: RePEc:eee:proeco:v:202:y:2018:i:c:p:32-44
    DOI: 10.1016/j.ijpe.2018.05.011
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0925527318302056
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ijpe.2018.05.011?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Verma, Nishant Kumar & Chakraborty, Abhishek & Chatterjee, Ashis K., 2014. "Joint replenishment of multi retailer with variable replenishment cycle under VMI," European Journal of Operational Research, Elsevier, vol. 233(3), pages 787-789.
    2. Lee, Jun-Yeon & Cho, Richard K. & Paik, Seung-Kuk, 2016. "Supply chain coordination in vendor-managed inventory systems with stockout-cost sharing under limited storage capacity," European Journal of Operational Research, Elsevier, vol. 248(1), pages 95-106.
    3. Cai, Jianhu & Hu, Xiaoqing & Tadikamalla, Pandu R. & Shang, Jennifer, 2017. "Flexible contract design for VMI supply chain with service-sensitive demand: Revenue-sharing and supplier subsidy," European Journal of Operational Research, Elsevier, vol. 261(1), pages 143-153.
    4. Cai, Jianhu & Zhong, Man & Shang, Jennifer & Huang, Weilai, 2017. "Coordinating VMI supply chain under yield uncertainty: Option contract, subsidy contract, and replenishment tactic," International Journal of Production Economics, Elsevier, vol. 185(C), pages 196-210.
    5. Michael J. Fry & Roman Kapuscinski & Tava Lennon Olsen, 2001. "Coordinating Production and Delivery Under a (z, Z)-Type Vendor-Managed Inventory Contract," Manufacturing & Service Operations Management, INFORMS, vol. 3(2), pages 151-173, August.
    6. Darwish, M.A. & Odah, O.M., 2010. "Vendor managed inventory model for single-vendor multi-retailer supply chains," European Journal of Operational Research, Elsevier, vol. 204(3), pages 473-484, August.
    7. Lee, Jun-Yeon & Cho, Richard K., 2014. "Contracting for vendor-managed inventory with consignment stock and stockout-cost sharing," International Journal of Production Economics, Elsevier, vol. 151(C), pages 158-173.
    8. Shah, Janat & Goh, Mark, 2006. "Setting operating policies for supply hubs," International Journal of Production Economics, Elsevier, vol. 100(2), pages 239-252, April.
    9. Hariga, Moncer & Gumus, Mehmet & Daghfous, Abdelkader, 2014. "Storage constrained vendor managed inventory models with unequal shipment frequencies," Omega, Elsevier, vol. 48(C), pages 94-106.
    10. Lee, Jun-Yeon & Ren, Louie, 2011. "Vendor-managed inventory in a global environment with exchange rate uncertainty," International Journal of Production Economics, Elsevier, vol. 130(2), pages 169-174, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Meijer, Mirjam S. & van Jaarsveld, Willem & de Kok, Ton & Tang, Christopher S., 2022. "Direct versus indirect penalties for supply contracts in high-tech industry," European Journal of Operational Research, Elsevier, vol. 301(1), pages 203-216.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lee, Jun-Yeon & Cho, Richard K. & Paik, Seung-Kuk, 2016. "Supply chain coordination in vendor-managed inventory systems with stockout-cost sharing under limited storage capacity," European Journal of Operational Research, Elsevier, vol. 248(1), pages 95-106.
    2. Sainathan, Arvind & Groenevelt, Harry, 2019. "Vendor managed inventory contracts – coordinating the supply chain while looking from the vendor’s perspective," European Journal of Operational Research, Elsevier, vol. 272(1), pages 249-260.
    3. Yu, Haiyan & Tang, Linglang & Xu, Yinfeng & Wang, Yong, 2015. "How much does VMI better than RMI in a global environment?," International Journal of Production Economics, Elsevier, vol. 170(PA), pages 268-274.
    4. Phan, Dinh Anh & Vo, Thi Le Hoa & Lai, Anh Ngoc & Nguyen, Thi Lan Anh, 2019. "Coordinating contracts for VMI systems under manufacturer-CSR and retailer-marketing efforts," International Journal of Production Economics, Elsevier, vol. 211(C), pages 98-118.
    5. Roozbeh Nia, Ali & Hemmati Far, Mohammad & Akhavan Niaki, Seyed Taghi, 2014. "A fuzzy vendor managed inventory of multi-item economic order quantity model under shortage: An ant colony optimization algorithm," International Journal of Production Economics, Elsevier, vol. 155(C), pages 259-271.
    6. Weißhuhn, Sandria & Hoberg, Kai, 2021. "Designing smart replenishment systems: Internet-of-Things technology for vendor-managed inventory at end consumers," European Journal of Operational Research, Elsevier, vol. 295(3), pages 949-964.
    7. Lee, Jun-Yeon & Cho, Richard K., 2014. "Contracting for vendor-managed inventory with consignment stock and stockout-cost sharing," International Journal of Production Economics, Elsevier, vol. 151(C), pages 158-173.
    8. Ghasemi, Elaheh & Lehoux, Nadia & Rönnqvist, Mikael, 2024. "A multi-level production-inventory-distribution system under mixed make to stock, make to order, and vendor managed inventory strategies: An application in the pulp and paper industry," International Journal of Production Economics, Elsevier, vol. 271(C).
    9. Darwish, M.A. & Odah, O.M., 2010. "Vendor managed inventory model for single-vendor multi-retailer supply chains," European Journal of Operational Research, Elsevier, vol. 204(3), pages 473-484, August.
    10. Jin Sha & Sisi Zheng, 2023. "Analysis of Sub-Optimization Impact on Partner Selection in VMI," Sustainability, MDPI, vol. 15(3), pages 1-11, February.
    11. Cai, Jianhu & Hu, Xiaoqing & Tadikamalla, Pandu R. & Shang, Jennifer, 2017. "Flexible contract design for VMI supply chain with service-sensitive demand: Revenue-sharing and supplier subsidy," European Journal of Operational Research, Elsevier, vol. 261(1), pages 143-153.
    12. Abhishek Chakraborty, 2021. "A surcharge pricing policy for supply chain coordination under the just-in-time (JIT) environment in the presence of backordering," OPSEARCH, Springer;Operational Research Society of India, vol. 58(4), pages 1049-1076, December.
    13. Hu, Benyong & Meng, Chao & Xu, Dong & Son, Young-Jun, 2018. "Supply chain coordination under vendor managed inventory-consignment stocking contracts with wholesale price constraint and fairness," International Journal of Production Economics, Elsevier, vol. 202(C), pages 21-31.
    14. Diabat, Ali, 2014. "Hybrid algorithm for a vendor managed inventory system in a two-echelon supply chain," European Journal of Operational Research, Elsevier, vol. 238(1), pages 114-121.
    15. Choudhary, Devendra & Shankar, Ravi, 2015. "The value of VMI beyond information sharing in a single supplier multiple retailers supply chain under a non-stationary (Rn, Sn) policy," Omega, Elsevier, vol. 51(C), pages 59-70.
    16. Lee, Jun-Yeon & Ren, Louie, 2011. "Vendor-managed inventory in a global environment with exchange rate uncertainty," International Journal of Production Economics, Elsevier, vol. 130(2), pages 169-174, April.
    17. Feng, Xuehao & Moon, Ilkyeong & Ryu, Kwangyeol, 2017. "Warehouse capacity sharing via transshipment for an integrated two-echelon supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 104(C), pages 17-35.
    18. Hariga, Moncer & Gumus, Mehmet & Daghfous, Abdelkader, 2014. "Storage constrained vendor managed inventory models with unequal shipment frequencies," Omega, Elsevier, vol. 48(C), pages 94-106.
    19. Govindan, Kannan & Malomfalean, Andreea, 2019. "A framework for evaluation of supply chain coordination by contracts under O2O environment," International Journal of Production Economics, Elsevier, vol. 215(C), pages 11-23.
    20. Teymourifar, Aydin & Kaya, Onur & Ozturk, Gurkan, 2021. "Contracting models for pricing and capacity decisions in healthcare systems," Omega, Elsevier, vol. 100(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:proeco:v:202:y:2018:i:c:p:32-44. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ijpe .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.